Why I don’t fear deflation

The argument about why deflation is bad seems to boil down to: “Deflation makes people keep cash instead of spending it….”

To some degree, sure, it gives people a reason to spend less, in the same way that high interest rates give people a reason to spend less.

But people still need to eat. They still have needs and wants. Maybe they eschew a few wants and let their cash pile up, but people are not machines – they’ll eventually decide the desire for the thing outweighs the value of the cash in the bank.

It may slow down growth, but it also rewards people who have been careful about saving their money. That resonates with me, personally.